The Utter Fragility Of The Eurozone: Even Democracy Is A Threat

“I’m appalled that two clowns have won,” said Peer Steinbrück about the Italian election, referring to former comedian, now hot politician, Beppe Grillo, head of the 5 Star movement, and former Prime Minister Silvio Berlusconi. One of them is “a professional clown who doesn’t mind being called that,” he explained; the other is “a clown with special testosterone boost.”

It was not the first time that Steinbrück, SPD’s candidate to knock almighty Chancellor Angela Merkel from her perch this year, put his foot into his mouth. His countrymen grinned and gnashed their teeth at the same time. In Italy, it caused a media tornado. “My impression is that two populists won,” he added, populists being even worse in Eurozone politics than clowns.

Italian President Giorgio Napolitano, who was supposed to have dinner with him that evening in Berlin at the swank Hotel Adlon, cancelled. But Steinbrück didn’t apologize. “What is said is said,” he confirmed. He wants to be the “plaintext” chancellor, the one that speaks the unvarnished truth, unlike Merkel.

There were feeble efforts from the SPD to protect him. “Regarding Berlusconi, ‘clown’ is the gentlest word that I can personally think of,” said SPD General Secretary Andrea Nahles.

Merkel’s government used this opportunity, handed to them on a silver platter, to lash out at their opponent. “With these kinds of statements, Steinbrück qualifies himself for entertainment TV, but not for the Office of the Chancellor,” said FDP deputy chairwoman Sabine Leutheusser-Schnarrenberger. And so, the Italian election was inserted into the German campaign—and heavy breathing could be heard from all sides.

The government’s enthusiasm for the election results wasn’t palpable either. Spokesman Steffen Seibert only said that the government would work “confidently” with the new Italian government, “whichever it will be.” Finance Minister Wolfgang Schäuble mused on TV that “we’re all not really pleased, but that doesn’t help, that’s democracy.”

Yet there was nothing funny about the election in Italy. The enraged people whose belts had been tightened reacted in a democratic and peaceful manner by voting largely for politicians who opposed Merkel’s debt-crisis policies that had been imposed on them. And until Steinbrück opened his mouth, the biggest loser had been Merkel.

Her man, Prime Minister Mario Monti, the unelected technocrat, got wiped out. He’d been tasked to do the ugly work of pushing through labor reform, pension reform, and property tax reform. The political powers let him. Then, when the economy deteriorated, they blamed him. A convenient setup.

Merkel’s other man, Democratic Party leader Pier Luigi Bersani, didn’t get enough votes to govern, and would need to form a coalition with Grillo or Berlusconi.

With its tempting message to end austerity and hold a referendum on the euro, Grillo’s movement received more votes than any other party. But he is not in parliament himself and has refused so far to participate in a coalition.

Berlusconi’s economic record isn’t exactly sterling. He served as prime minster three times, for almost ten years. But from 2001 through 2011, Italy had one of the slowest growing economies in the world. Now he is back, scandals, trials, and all—and wants to abandon austerity.

Eurocrats got the willies. Because last July, the ECB set out what would become a trap when Mario Draghi promised to do “whatever it takes”—purchase unlimited amounts of bonds from teetering countries—to protect the euro. It calmed the fidgety markets. But attached to it was a conditionality: the country would have to request help and agree to undergo a reform program. Austerity. It allowed Germany and some other hard-money countries to swallow it.

If Italy abandoned austerity, it would become ineligible for Draghi’s promise. It would have to stare down financial markets on its own. In short order, it would be on the brink. There’d be some options, including “unlimited” support by the ECB without the conditionality. No-questions-asked monetization of Italian government debt.

If it worked for Italy, it would work for other teetering countries. Debasing the currency. Central banks master it. But Germany’s dream of a hard currency would be dollarized. Perhaps it too would pass, or perhaps it would lead to a monetary revolt. Eurocrats dreaded this scenario. So they turned their guns on Italy.

“There is no way back,” said EU President Herman Van Rompuy. “This we simply cannot afford.” European Commissioner and French politician Michel Barnier chimed in: Italy has no choice, he said. “This is a catastrophe for Europe,” grumbled Luxembourg Foreign Minister Jean Asselborn. He too lamented the danger of populism.

“I hope we are not going to follow the temptation to give in to populism because of the results in one specific member state,” said European Commission President Jose Manuel Barroso. He feared that anti-austerity passion would spread from Italy to other countries.

They all document with their own words just how fragile the Eurozone has become. Every little thing can break it apart. Democracy itself, instead of being a fundamental strength, is seen as a threat: if the “wrong” party or an anti-establishment populist or an anti-austerity billionaire gains the most votes in one country, the entire 17-nation construct might break apart.